KBH - Earnings call transcript Q4 2024

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Operator

Good afternoon. My name is John, and I will be your conference operator today. I would like to welcome everyone to the KB Home 2024 Fourth Quarter Earnings Conference Call. [Operator Instructions]. Today's conference call is being recorded and will be available for replay at the company's website, kbhome.com, through February 13, 2024.

to President, call Investor like Peters, to would Vice Senior Relations. I turn over the Jill Now Thank you, Jill.

You may begin.

Jill Peters

the review Thank and you, results to XXXX. thank everyone, and for our you for year John. joining us Good fiscal fourth quarter afternoon, full today

On President Chairman Chief Johnson, and Vice Officer; Hollinger, Rob Jeff Chief Executive Officer; Jeff President Mezger, Chief and Treasurer. President Senior Accounting Vice Thad President Financial Senior and Operating are Officer; and Kaminski, the Officer; call and McGibney, Executive and Chief Vice Bill

During forward-looking this and to today's results, Act implied various not of forward-looking detailed actual filings Securities call, Due are items are will be in our results obligation those future Reform statements including the the from discussed press that company or Litigation of in considered different the statements materially of and those meaning XXXX. them. Securities Exchange does in with These factors, within stated not the could guarantees any the update Private and Commission, release to statements. be undertake

housing a adjusted non-GAAP Investor discussion non-GAAP with and/or Relations referenced its can website kbhome.com. measure here today's reconciliation our the comparable at margin, the be charges directly profit And any that, GAAP measure most of press measures Jeff during excludes of in found other today's to addition, and on which In inventory-related gross Mezger. release page of is

Jeffrey Mezger

Year. Happy everyone, afternoon, New Thank and Good you, Jill.

occurred the ongoing. a loss are I'd California comments the Southern We damage to are on speaking with sharing describe fires where our the in Words in today you few and cannot have areas fires. like office and from start by corporate Westwood. the

for been also to heroic and thoughts their all to out teams efforts. responders first that go recognize Our and affected. fire prayers I'd have thank the like and

long its are divisions, the road and it of fully Although for a not of these resilient from disasters. will recognize operational. to move also We that it sales know our our tenacity employees, people as are business strong and California be But rebuild forward. communities we and and some is to all usual recover offices that with

higher We of range financial year $X revenues year-over-year, fourth resulted deliveries at key XX% XX% our earnings build substantially was with metrics. diluted And by to most year's billion, fourth primarily guided across within that driven quarter. were share a strong a our our increase that our had At in times. quarter from finish from $X.XX per lower grew significantly last our total performance

and under to to expanding XX.X% margins increasing income. in gross in healthy, Our were operating XX% just

returned we In share to capital addition, majority nearly which from of the $XXX million the vast our came of during shareholders quarter, repurchases.

billion We fourth per XXXX. revenues contributed $X.XX increased $X solid to driving a share. Our results and delivered to financial quarter of roughly for nearly XX,XXX total higher earnings diluted homes performance

of out expanded as history. produced higher build book our well on shaped prior are year-over-year XXX average from XX% Operationally, last reduced in Our return XX, new time shifting volatility value of customer highest of of the sold executed housing light market from the XX% equity. rates year. that a the mortgage year, the notable and results we in These company's achieved communities in XXXX an opened and by level we satisfaction we our and

contributing homeownership to market with housing and be been employment buyers Gen largest housing driving generational a demonstrating expect for millennial in household and growth demand significant Demographics solid the we The desire and benefiting have in formations. is Z increases. strong wage the factor and to from cohorts, a continue will

price markets, points. normalized has especially levels our As in to is supply, still inventory at historically although existing it risen, most home below

remain rates influencing are mortgage While rising near-term from favorable, demand. longer-term constraints housing conditions affordability market stemming

the up year XX% net X,XXX in generated comparison fourth quarter, in ago orders against quarter. soft the We year-over-year a

were orders to fourth by X.X absorption a driven last in homes X.X community year's higher quarter. compared significantly net per Our pace of monthly

at indicative we pace sales quarter on our miss remained solid mortgage said interest are a progressed. traffic that selling as level, rate as homes. buyers goals cancellation all volatility rates. sequentially well with Favorable communities Our hesitant of within in tempered homeownership, leads their the historically us internal consumers discomfort stable website did ready indicate low Having as our have able but to year-over-year and this, from our a due the our strong pool as to in rising rates to close of

and their design model, Affordability studios. floor drives Buyers footage, built-to-order decision-making, sales and lot, finishes influence offers plan, can by this choice flexibility. our personalized our with their square price elevation which final help we in meaningfully for and buyers solve selecting

addition deliveries coming a from Buyer for sorry, to built-to-order closings, built-to-order backlog I'm more our -- consistency our quarter. provides weeks forecasting converting result, degree in first hesitancy buyers quarter of our X first continued model our visibility in has to current date. of with XXXX XX% In choice, in Xst and the offering as to quarter our And than months X to fourth some sales.

net orders comparable in prior X,XXX the are of Our the year. X,XXX as period compared to

our our a we now will we be quarter, the gap orders order for meaningful do XXXX the net comparable relative expect year's quarter. community full number the XXXX of selling last of are strong with that versus in openings estimate As comparison quarter. Xst entering the net stronger on to We roughly Xst flat and months a to projected, close quarter

moment I'll that, to ask an Rob? And with for pause and update. operational Rob a provide

Rob McGibney

order color Jeff. on you, net results. by providing Thank I will additional begin our

increased Our to XX% relative ago year fourth conditions count traffic the community market higher quarter. year-over-year, and improved a homeownership, for reflecting demand quarter

leads compared our Jeff to were up the last quarter website year. mentioned, as In fourth of addition, from also as

the sales macroeconomic However, the along general our global election the slowed continued volatility progressed into our of as and mortgage below interest target. other internal with and to uncertainty concerns pace headed quarter rates,

XX mortgage increased XX-year September from totaling rate basis and two October November. cuts to interest points our again rate a the Although quarter, the during actually Federal fixed in fourth Reserve on announced

a a down the on shifting In their purchase of As option rate environment, offered our float buyers some result, quarter. our by the particularly in rate last months hesitated decisions, X onetime venture, Home feature buyers. for lower if joint is decline their This Loans, is rates under our valuable buyers built-to-order they mortgage home allows reset while KBHS a their to construction. tool

quarter. that to the we begun and built-to-order were With model our quarter positioned fourth consistency the had XXXX provides, closings and our with backlog for also our shape first well

during a support quarter That As relative than with chase roughly the said, lock of mortgage the fourth timing of we we waiting on the favorable to a form slow seasonally offset relatively their a in homes was price communities concession, to rate the having Mortgage buyers the of whether for prices a rather past during net despite built-to-order XX% in a orders quarters base X sales with serving concessions our help comfort held result, a period. rates. consistent decreases to our our continue some stable purchases, buydown. level option rise more This buyers with or gain of additional rate.

is of use we Although to will down tool, our needed incentives a support as as selling these goal our them the sales. to use wind

billion. $X.X of began with X,XXX at We homes more backlog than over a valued XXXX

While can time average XXXX, backlog our fiscal improvement in is build driven for a into our we our more backlog by lower revenue. convert XX% year-over-year, quickly

in personalized an to customers purchasing still achieve year later closing. value year-end home and our provide proposition times build faster enhanced us allow sell addition, a and the a In to

sales we a inventory third part As homes. XXXX our our backlog, homes sold of be through of will of early comprised and built-to-order quarter result, deliveries the have homes in the

starts We started approximately the to X,XXX X,XXX XXXX production increase homes the roughly at fourth in the year. in quarter, contributing homes total in year-over-year XX% end in of and a

starts forward, aligning Going sold. majority starts to with we those already the sales, of plan our continue with

that Southeast averaged was we at our quarter impacted the incur X damage an times our improvement for flat times, were communities. any not they we in XXXX, positive, essentially build a hurricanes in the in although fourth did While which significant of temporarily about build months XX% quarter-over-quarter considering

able X be start to months is completion, assuming we drive of our end to to home lower trade from as toward XXXX to our labor. the the availability build goal range, expect historical our times progress no of first We of quarter lower in which change

To the that to immigration new It understand trying is not administration policy investors even industry. on recognize yet. as we tariffs the homebuilding and could that place have in are impact that last is the point, very early

So while have to how share unfold, current will our will I we wait policies of a and see thoughts. few

the are products domestically. of we produced tariffs, to As majority the use

U.S., for products with and look demand offset higher in of the our pricing. driving cost a made we would in those up result work volume-based those costs products, to for the thereby ways on could suppliers tariffs Although

interruptions future our labor, ensure the times we is relationships our supply built. to very advantageous long-standing trade our have to We labor their that visibility confident had homes and navigate partners, our to get respect disruptions we in production when necessary. managed we even are will to any Working which on a in process. chain relied trade through tight, trade even homes, With in of backlog subcontractor past flow sold was before, from planning our crews we provides necessary as

reduce increases the year-over-year, and the direct impact to in costs to which mortgage cost. helping concessions fourth were our land homes during started and on sequentially down We of both continued offset quarter,

in our over we and year incremental the concrete volatility we year. where the favorable lumber products, categories pricing cost our of are on The despite lumber customers, with find help should driving focus the closing opportunities reductions to this, for continue months affordability to most on changes always in which saw fiscal our There the course were of and sales.

capture of the buyers our mortgages more Home help joint up, benefits wrap rate rates and as which manage our quarter who I backlog effectively well finance more I Before capture third visibility venture, finance buyers. who in our KBHS. using XXXX their maintained us with metrics our We as credit Higher company our closings, their provide Loans. XX% homes our KBHS buyers will of through review

who The score attracting of still their $XXX,XXX we buyers was addition, down In of home, XXX. Even and customer use On down average, are of other who to buyers a KBHS stable, FICO qualify had they $XX,XXX. was X/X use XX%, a customers see their cash sequentially over who we versus JV for both significant levels first making customers household lenders. can payment. while average income our and at about mortgage equating payment purchasing higher with from the our year-over-year satisfaction

and returns not are changed. longer-term our investments profitability of increasing goals scale, Our acquisition have for expanded in our growth. and land we development XXXX, in With positioned

in have of first significant of spring We in community time planned selling season. for half a the the openings number XXXX

optimizing and affordability function further value improving lower on products levels, a high to on satisfaction execution each cost our And and in Our our I are be and Jeff? turn will we our and Jeff. to improve increase of the to community-by-community solid buyers' to build success returns back confident customer that, asset a ability our the basis will execute. our maintaining margins over times, fundamentals, with call engineering direct

Jeffrey Mezger

Thanks, Rob.

of $XXX the During invested land we development, million acquisition XX% quarter, year-over-year. and an in increase

which over develop lots way, both product year-over-year newer count to billion We $X For our position X/X increase billion as acquire to by we the points. more the growing of nearly community invested to with in underwriting criteria, plan ending community XX,XXX of $X.X we almost to and as optioned. diligent We lot our than on represented or increase well focus increased price controlled, This Along markets. owned established XXXX a XX% we our continue strategy and our remain respect year, land. our count. with as year-over-year, are

balancing that on inventory now well, novo our growth which have of Atlanta and president Atlanta, our accomplished in platform strategy finished seasoned our we experience in is our land start-up process in what defined strategy continues in focused in expanding latter starts Boise de Seattle, we developing division know market Charlotte. housing we top this with XX and with a market acquisitions. development years already division hired and of the are a The entries we smaller includes to efficiency, phases similar capital to opening group manage a are through and that a of footprint, have market, pace possible our market Across has wherever lots is who of pursuing actively lots. we

in shareholders. balance repurchases to reinvesting that share of is are XX% back top including is our a basis we $XXX our per With billion on returning regular a our business to our equity, million have year. in We to shares which a healthy We in the on also to with plan return meaningful both generating, late bought and stockholders Since we shares. XXXX, in the our dividends. and XXXX, earnings cash priority and we our our able in business at X% shares approach $X.X shares our start maintain of the continue began completed expansion, amount to XXXX, in capital of capital our of repurchasing representing share together reinvesting balanced return outstanding sheet, accretive in repurchasing

In ongoing in entire our closing, recognize strong team our the XXXX. I to to homebuyers Home and their KB results want serving to commitment for contributing

at midpoint the company revenue start positioned dynamics we Our into as we of in the meaningfully and is fiscal to of Due year range. months have this our we the fiscal growth well guidance our for that closing future land continue intend to billion our experienced for of acquisition the market in to reinvesting housing XXXX development. lowered continued $X.XX XXXX,

a year seasoned always our is long fluctuating management conditions. highly navigating business team have operators we there are unfold, our a as uncertainty model a of divisions to in and skilled will in how market executing and new degree tenured that Although

Longer-term housing market conditions remain favorable.

quarterly We to to shareholder driving the as enhancing repurchases continuing shareholders to higher both as cash and long-term meet and return our demand. committed our remain by expanding through returns products value profitably volume, have share We communities well to dividend.

years. our retirement. We the with I the part that company, will moment a conference am for all leaves mine for helped as you a will be has finance Jeff, call long-tenured recognize XX over this take past team and to want been confident the a Jeff. and company. and stronger you critical healthy your earnings highly balance call a Jeff partner Thank grow him a in a contributions, company, producing a Before KB I He Home the transition. into last and has higher sheet. ensure turn valuable best with many his the help of returns and of margins He to leadership I accounting developed having in capable team wish smooth to

I'll that, with financial And review. now Jeff the provide to ask Jeff?

Jeff Kaminski

and your been to thanks CFO. kind you during sincerely of dedication their also to entire words point life like with be group Thank leadership those my able my to I of my for working appreciate the our I'm especially you, complete to Home. relationships It's close professional team our company. as grateful privilege during truly our at career people. Jeff, KB the to countless success for relationship with my for extremely I working and express high professional time this Home here outstanding would the the for KB heartfelt interactions tenure. and special contribution my with this and

share. earnings quarter, in and increase our I income on comment fourth for results XX.X%, solid operating cover a an full now will year XX% for year-over-year with driving XX% of per financial XXXX as a margin revenues XXXX. in performance well and the quarter outlook the produced our highlights of In increase we as housing

a grew reflecting XXXX price. increase land our the along cash the selling fourth in billion billion quarter, the delivered $X.XX rise to flow homes addition, to robust compared average investment, housing share a continued repurchases. in with a overall of million in revenues our In number and in In X% year prior supported period, $X.XX XX% $XXX

year the Our XX% rate represented significant fourth a conversion X,XXX, a up backlog earlier of in and XX% improvement quarter from homes delivered period.

build favorably times delivery Our continued current performance and quarter rates. impacted improvements was by cancellation in lower

housing range first in billion. to $X.XX ahead to of XXXX we the Looking to expect the quarter, billion generate $X.XX revenues

homes, orders $X.X revenues build are in we year, forecasting projected range $X.X by and full supported of of reduced billion net our times. to XXXX sold the billion, the housing backlog For

price our overall rose increases X our $XXX,XXX selling approximately with average delivered In regions. the fourth of of to X homes in quarter,

quarter We expect our at first selling XXXX flat remain approximately overall sequentially $XXX,XXX. average price to

to quarter average For to the relative range selling the the fourth due to for the million full earlier is forecasted the first decline $XXX.X full to income Homebuilding million of The in XX% in selling year, the for we the to are year overall region quarter expected XXXX $XXX,XXX. primarily higher quarter. year price projecting an mix operating the period. Southeast in increased full of price $XXX.X compared year $XXX,XXX average deliveries the for

approximately compared the margin both improvements XX.X% XXXX our and to profit expanded income XX.X% to in operating first ratio. homebuilding reflecting in gross anticipate be operating fourth the XX.X%. quarter, SG&A full to and We quarter homebuilding Our will margin XXXX margin expense be metric approximately X.X% income year the

basis points the profit Our margin year gross to quarter XX XXXX increased fourth XX.X%. housing from earlier quarter

for inventory-related and Excluding for quarter year the million the charges current million $X.X quarter. earlier $X.X of

in was gross period. XX.X% XX.X% quarter to prior compared Our for XXXX the year the margin

a forecasting quarter This in for persistently XX.X% first the will XXXX are gross We of the to profit outlook XX.X%. market margin XX.X% range for the elevated to conditions the in full in year of margin a gross with experienced interest housing mortgage assumes continue. and range XX.X% rates we XXXX,

As result, of expect concerns. address homebuyer concessions we affordability in use no our to change significant a

intend offset we as costs concessions continue costs, on help well Rob impact reducing land as focus higher our to as stated earlier. these addition, to In direct of the

Our housing ago due improved revenues. from expense leverage higher for general quarter X.X%, from XXXX XX selling, points and to fourth administrative improved a the mainly year operating to ratio basis

range and will be forecasting range quarter in XXXX XXXX ratio year that of SG&A our be to first expense We to in SG&A our XX.X%. are X.X% to the full XX.X% of XX.X% the ratio

year favorably and tax of fourth to tax quarter. ago The more an expense rate for building credits compensation XX.X%. rate related Our income effective represented the as from stock-based tax energy-efficient the was earning additional impacted compared quarter are benefits of $XX.X tax million to homes by

up XXXX, to the compared be to is XX%. X% We XX%, XXXX to as tax approximately quarter primarily due be expected full decreases The year rate rate to expect energy for credits. tax our in first around effective tax

Given our for anticipate elevated will and tax maintaining of tax qualify on affordability in requirements we the IRS XXXX. homes of credit these the products, focus qualification our fewer our credits

clear, we certified committed building STAR standards. remain be ENERGY highly meet homes that EPA's To to the energy-efficient

in homes year buyers. believe the share of share per of them our our business million from the on tax earnings benefits the the period. for $XXX.X satisfy impact count as share diluted income our However, and that our income our the significant in by to $XXX.X outweigh Reflecting year, diluted possible we in diluted The million both compared increase per Overall, average costs year-over-year very our performance. drove X% to the reflected the financial XX% for year higher standards net operational stock increase are we for compared XXXX well we per with to fourth $X.XX additional as repurchases meeting diluted or or some necessary XXXX quarter in XX% prior our period. that the qualification common net fourth $X.XX lowered the as of reported IRS quarter for credit prior full execution share pleased improvements

Our prior midpoint the than were nearly housing billion as full provided to higher million X% guidance the revenues $XXX up range of year our year compared of were January. $X.X and last

the In to XX%, compared the rates share much year. the XX.X% to addition, for our year our despite persistently year diluted a for XX.X% increased over return by on $X.XX and earnings per of high of mortgage ago, improved equity

new XXXX total billion drive $X.X increase level since now quarter XX% was plans contributed land and land. openings community early compared of the to contract, or development $XXX owned supporting The year our invested ended lots fees represented We approximately and XXXX. year the full the of pipeline Turning XXXX in under with XX,XXX significant and in the which XXXX. to a to over highest during to a million in up

the active $XXX up count, our of average Regarding XXX ended We fourth was X% up community communities, year year-over-year. year-over-year. X% with quarter

to end result quarter count. expect average the which an We increase communities, the XXX first in in X% XXXX with approximately would year-over-year community

third communities quarterly average to throughout open of $XXX the to We maintain the also comparisons XXXX, in second expect community quarters and roughly million generating year-over-year selling favorable counts. $XXX

also to than more higher did communities community sellouts. XXXX, foresee in in we we plan While open we XXXX

we Based ahead early expected currently selling it ending again the anticipate on grows of approximately with communities season. XXX sellouts, the year of timing these just that before XXXX, in spring

a of since of stock late repurchased share of X.X approximately the quarter, shares we at and or total count buyback implementing million, program million During million fourth common year shares XX.X shares over starting a $XXX contributing to million in XX% our total of repurchased our the the cost share repurchased X.X full XXXX.

the our cash to under investment operating flow, we current pace, repurchase With the of liquidity repurchase the opportunities on volume to $X.XX shares million with liquidity under economic revolving timing $XXX price cash land continue billion million with and of borrowings considerations outlook, facility environments. authorization, shares based our stock At remaining and cash general available including year-end, common had we and market total needs, $X.XX no market intend housing and credit $XXX billion, outstanding. our our unsecured and of of

Regarding continued credit both and progress our are with reflected of XXXX. ratings as in our for metrics, the upgrades recognition in a S&P pleased and our Moody's strong financial leverage and position we

year, Over at XX.X% points basis ratio our XX.X% end improved XXXX. the past by compared XXX of year-end the to at to debt-to-capital

debt our no maturities expiration, in have maturity XXXX June loans, senior XXXX. with our next term note We into

remain for another future operational growth. and marked XXXX year outlook and optimistic we strong financial performance the conclusion, about In of

debt will runway capital addition, in allow us opportunistic financial we liquidity deployment to profile be our In with believe and including for to our position, and solid long continue beyond. maturities XXXX

centered enhancing in XXXX as principles we value. on and well are unique the objectives portfolio as on model, we stockholder times by achieve of well long-term and our improved our and build business communities positioned our execute built-to-order solid as believe balanced returns-focused core allocation capital to supported strategy growth our approach We of

please We the John, lines. questions. your take will open now

Operator

Evercore Stephen ISI. from of And first the question Kim Instructions]. comes [Operator the line with

Stephen Kim

and the the very years. Yes. usual. all as the be thanks it's same over Jeff, much, going the of to without luck you, best help for Thanks color not Appreciate guys. but all

Rob McGibney

working you. with Thanks, and Yes. Steve good

Stephen Kim

Great. Yes.

lot. a gave You

to really one the out of sticks backlog digest And indicated turnover, all think you the of quarter-to-quarter. didn't things I up. at which significantly trying actually implied turnover the think backlog is that times really the I are But improve cycle ratios clearly I'm going all it. So that

so then and pretty it turnover backlog of look into like calling curious, looks next you're to I'm the ratio It And quarter up as looks meaningfully. like, the a be year, rest you like first for on average, spec time probably And that your somewhere curious versus or your balance approaching XX% of on more of more? due is an much cycle how maybe I'm to improving inventory carrying in kind view sheet?

Jeff Kaminski

Yes.

So actually. function those that those XX%. as of Steve, time significantly, particularly in has quite a do it's we all noted, right next factors you you The about first improved, the numbers quarter, are cycle approaching and for expect year, gave

cycle and over conversion the the backlog impact been was So time. first on the and has largest time, foremost, improving

and a a more as we've buyers towards We more to carried little the want, the what some conversion quick and to ready that's also market bit backlog have homes, we're inventory. delivering tilted contributed move-in rates. And reacting

come we to to have right term there back built-to-order for longer but hope them traditional We always percentages, back our buyers.

the and both. focus more is cycle to of COVID. those construction on a getting after it's really primary lot So been high quite the has good especially we've field last our post couple of driver been and that levels, traditional had that. out a really the back on And work in years, lot significant, of side done that's on But the the time cycle spiked really, times piece answer

Stephen Kim

-- comments which the math, but the of about quarter pace how And which end probably for doing up year. gave order to -- seems seen up Great. helpful. that the probably the really some Yes, quarter, a you're flat X% And be looking was weeks. you going the about also Mezger, remainder much that then gave at bit your flat that you in the the is you're Jeff count community year you X of is to some orders for the year-over-year be first -- for for means about call, looking it of little that's had

year-over-year of absorptions kind So first type basically, rest you're flattish quarter. the calling for your for of

for in So you wanted opened we secondly, I that what with correct. to going then -- be have consistent even whether much communities confirm whether if and that, to just having worth any lend size geographic the generally demand forward, year-over-year? that absorptions it that's something stronger their that's would out, the is absorptions absorptions calling that, that expect to can it the maybe generate nature are respect so be of particular actually to likely environment reason stronger And location, or XXXX, them

Jeffrey Mezger

And did you absorption been come calculations. similar correct. next good on will That one back. expecting a and to to quick year We're assumptions your the is good. One be math and pretty And off the Steve, then are analysis the was it's choppy. 'XX. month and be you

pretty be with And it will so in we we think what typical saw 'XX.

that surprise at sell it if wouldn't deliver than the a me you'll if But or formas communities you We more was higher and the year, have to would it shift then that them always deliver. build opening. new with sell the openings a lot see are pro what openings our this because and pace we communities expect out of better ongoing of communities opening. hit communities We our just projections to on the based

my our internal We've call September, were But comments, our and softened touched higher the bit. demand when a corner. fourth in it it the in on goals I quarter. were then than was strong, things in we X.X% solid And had turned

in it's reflected so And far, 'XX.

in communities. community orders saw per lift basis, we're a the and year So tying just the units we last on what basically to the

Operator

John from line question And with of comes our UBS. next the Lovallo

John Lovallo

luck of your you best retirement. to Jeff, in

spring wider range? understandable are of question that the given the rates question main the and is the factors the could First volatility that end is XX% on drive the importance the of to of kind low side, the XX% the for but or in margin I gross what guess high range rates is besides season.

Jeff Kaminski

Right.

high So the general expect next of affordability on many affordability largest and respects where impact the move. driver where are, we and of low rates on both end for is in rates probably the the the economic conditions

had you mentioned. to part out of So or season range, right spring early a obviously, the in in the It's that's now, year third forecast the before selling difficult little quarters. reason the as the fourth for

on estimates, We margins, first margin out, base based in the quarter exactly really the backlog what next quarter. our our first the particularly we -- and have that's

have sequentially at fourth XX at volume in And that We goods first And a the to sequentially, the fixed mainly when that of just also the because revenue due and are included now versus at on it bit basis quarter, cost. of the on that midpoint, leverage leverage look quarter, do first leverage. higher points the in we our lower quarters, that is on better the were that sold. you costs focus you less when little on look fixed cost down the margin and we the quarter at about look the

than homes for full So what booked mean, in see first, the those clear you you back like always, end basically, will just of a been lot saw the is and fourth the have into the backlog, less I couple the of The particularly be quarter look the have to forward, -- it more over to -- of year, less those next we longer in most quarter. months and out half. delivered we the more the that of expect just sold

year -- idea and to the a season. have spring a up the back end So shaping have it the bit come better more selling and is how the we'll of come again on the clearly quarter up will first based little visibility company at

detailed hope guidance we point. give more that at some to So

John Lovallo

M., market makes about levels. you perfect inventory. lot Obviously, Yes, And about in a Jeff of the talked concern there's just overall sense. then inventory

appear just where was shape. it inventory I a maybe are a bit. good But hoping basis, has those on I mean some out increasing. there stood out that national could does pretty little in flesh as that is comments So you it markets

So maybe just just a what seeing. the if on if will, us thoughts you you and can give bit little around you're go horn,

Jeffrey Mezger

we are other X there's those One the at in median levels in higher in call of to our look levels be that. of than pricing, Yes. markets, months are in inventory at. both would pretty can below Most than inventory much the cases, if out situations, in and higher at you be with Austin us similar price resale X.X a products. priced for that Austin, couple in would and range, resale the inventory that we're John, it's I operate Certainly resale Jacksonville. the And

position competitive range, They're inventory moved where Nevada, in a But price other point, probably a at in a of X in months there's those Texas of through a bit. our higher. but you to X.X still has not up lot little inventory are run we're So California, the there. Arizona, parts

the at the look at important guys and So I as inventory points price not markets, various quickly of looking just well, the are think it's they're numbers the as you how trading.

Operator

the the Bouley question from comes line with Barclays. And of Matthew next

Matthew Bouley

in where relatively hear I everyone's the go to incentives, stimulate of that going future. sales to just be kind communities well a on going reductions? what the were K. also is you the flat that sounded guide specifically view Angeles wanted that of that and is wishes Los there, kind balance -- look quarter? be you of the back in they're activity? think to that absorptions to the to I Jeff like down to Just mean, glad allows order -- that it it I'm the and best to of And of will increase kind are QX end high price like kind that of to digits data, what or double Is that you quarter-to-date. it kind from concessions, the quarter. it on look single-digit now of at base for

Jeffrey Mezger

an and it's in The doing openings. function number today. improvement introducing close just February. balance of communities over I'd the of and not know big year how just that -- break the year-over-year the from January it's it's the the around our a it's we're market month a we're through because odd market it's It's small that's Matt, for or opening have of for December, period. what the here we'll fact is year. it or dramatically Whether the holidays detail doesn't the a of weekends said where of orders just or the selling because driver year the general in number we to we of very walk gap why change whether with a And quarter or that community

Matthew Bouley

more guess concessions if thinking it. -- to there back the But just question, know I came back Got incentives lighter versus a about just you you kind the margin any I sales sales the year? more how depending margins the and bit sold is on which click Okay. dial you But than about in wanted this margin there. between just I it the second the of the of and evolves and type hold of there starts year, little homes how bit QX. question. in over on just Or and guess starts goes in QX. of look balance to you maintaining starts? line little mentioned you on on would than a a expectations the I market this did to that start little level at are balance kind thinking double was a And kind assumption of

Jeffrey Mezger

optimizing Matt, keep it, ideal There's gets returns what community, we that that highest function margin for and run asset. an an you target rate it's highest a we ideal every of the really at return. the calling

need to It's rate. them if homes levers asset. pull sell won't start -- an that sales things we're what of close margin or sales optimize blindly incentives or ensure pace improve have We're off, will We hope we environment. don't can the sales -- we'll sell not sales them, our hit we whatever -- going the to kind are if someday whatnot of start the just and a price them, we the try and pace the with just in the them to we're to is. do go bunch on So we to at and

Operator

line the And Michael JPMorgan. from of question with comes Rehaut next the

Michael Rehaut

and I of in it's -- and Jeff, afternoon, tragedies you K., Good forward. all going L.A. working Thanks. with hope been has it Jeff great been luck with best everyone's And the safe also, unfortunate

in understanding make we're margin sure and a dial guidance little gross bit the on to wanted Just it properly.

In operating believe environment, to if XQ, said of terms a similar you're type of just a leverage? simply the XQ. modest sequential function I versus you of more reduction assuming XQ that's XQ incentive in

sure more that to getting of forward again, was to the of from make XQ and getting year, to midpoint else? operating conversely rest that I the leverage wanted a anything the versus going just closer correctly I also if that's function So

Jeff Kaminski

Right.

sure about talking So you you're Are when you I'm you're talking from the talking coming year-over-year? Where sequentially? not there? operating leverage, Mike, are

Michael Rehaut

little Well, then margins sequentially, XQ versus get to the talking the year. of a of because margins taking forward, a down a improving bit to the from and gross looking little midpoint XQ -- right, being you're step bit about XQ full

Jeff Kaminski

it. Yes. Yes. Got

Okay.

to is on So of fourth leverage yes, the the the the sequentially, due fixed virtually lower all decline costs. from quarter

we the fourth have the we're in similar pricing, of The are know bulk think incentives, cost. the closing that experienced table we maintained homes, that. We in et on homes quick around move-in those what view costs, giveaways fourth. of don't that that -- We variability pricing. bunch in expect of but a We there's will the point the profiles we like be And always some just We seeing cetera, in the quarter. or anything have saw backlog. any to from about of ready quarter, know

the on piece top yes, look the improvement has cost of a quarter at I'm of sort you the within a low number it -- is know, for the full sometimes usually quarter, that's year, favorable, depending coming year, volume When an unfavorable looking leverage forward to the looking as off quarter first fixed the at So -- full the it. but line When the basis pretty sometimes impact, always the on you first you more the us. I'm one, sequential on quarter. had really the on

year lot back side also seeing as importantly, impacted, actually mix It's think at. I But right to communities we also versus open deliver these is due to we about leverage forecasting mainly where full is are of at X midpoint, that the bps the it. margin. what slight those A the due that are XX of decline So mainly and now will quarters new mainly and a out and XXXX in total. just

underwriting now on fairly current job to of now. we But give uncertainty bit little communities the lot on it current But and we these we range numbers if we there's it's best point. best forecasting to that is a say based other is on But And the conditions our as know, a the a out. right these do do we'd percentage and could more stay opposite guess right our slightly full a than good better their the on go point, we like this enter and way. improve, maybe conditions really a like estimates year conditions full than wider if at but divisions normally everything

Michael Rehaut

of compare of I dial holds the fourth end -- offering the on heard to in talking also Right. Understood. of end or mortgage to I to quarters. towards the bit, X Appreciate quarter on on the type if incentives, you little part like willing miss I with roughly the bit concessions. internal And secondly, did you conciliatory the reason about guess, in because And maybe not were -- that similar being Good. I statement last little the your the a little wanted quarter? hold I approach that. how sounded way beginning margin if at view kind a perhaps you -- just fourth to more the that if about the offer X orders the that's communities to basis? versus kind industry if reductions of just incentives being the of Rob a do where of those or believe hit bit the dial if level your wanted to true, price also and you're some of held of of quarter right the -- market it projections, think of versus extent incentives from if there percent incentives of took base broader on any to the volume, the itself the a maybe right incentives you're was you

Jeffrey Mezger

we the X, months in waiting X house every deliveries And example good and number. XXX% spec our were can of they'll homes. until builders ago, peers I a or got their the a Mike, versus the big make complete of the the he's up But of our comments how on and or their that to just then incentive are in one until they're sold X, difference because they Rob operate it pass lives and a chunk trends two lot keep day. it's hit because to clear us detail they

through is compress, incentives sharing good concessions rate which we're there's what that locks Rob, build times on built quarter mortgage some the thing for with our you So the of no just why are business. a you as the continuing having were And you do. this to the as saw get again to and walk home really in you It's can. call needed. quickly But our don't

Rob McGibney

Yes.

way some So down. presented quarter. coming we as I of We that was the say the moved did would the to you were of question. that, were in in quarter. think overall or or I that go environment for asked most we rates increase When the throughout level buyers where said you an incentives the didn't in September, We were big that we -- back change it. what see a the you right there number incentivizing didn't of

I do lower. less was because that, excitement gone just to about some were That's needed there the other rates way. think

cuts price that did or we in in putting discounting of time demand level were considering a competitors of play We discounts sales or saw choose chase in to markets not the of many choppy year. with the our big slower how the QX

meaningful We're are -- We always that. haven't about find and to demand up, see season. And do the a finding and December a for Jeff we So -- better have still the do if just as But that rates are spring to we is time of [indiscernible] to will. mentioned to selling the sell, we're always getting off time that. see more level buyers a creep it's of bit we're the now because really way improve. adjusted going year earlier, sales into the right tough up entering that in we the deal little it's

price to it. sense see selling. keep just the we'll but than up that's along we if to And do what -- that as on and we're periscope incentivizing more need keep a put So going go means take to help to where we've where we little do or we're on that But If that now really for it that been more it. got we've to makes the of backlog us we've just take had. we'll the because that's where to little off rates, period a working entering

Operator

the line question of Alan & Ratner Associates. comes next Zelman from with Our

Alan Ratner

good Good afternoon. luck else's with And the fires I just and want K. to all echo guys everybody upcoming to about you out Thinking retirement. there, comments. on Jeff the

along My the meaningfully I kind the hurricanes? was of lighter count were first there. like that either development there that getting the your year that quarter lags or curious, really pushed all But in fires in than two. cost in dip out of question driving kind maybe the delays this Or year, we some view just obviously consistent on or of I'm to over at communities fourth when community a bit any Southeast up guide. with sounds pretty count expectations But either as last through flattish on community there's I ramped of California, it's count, Admittedly, these know expecting. temporary. was are the little the the you the And your look it because lot

Jeff Kaminski

Yes.

it side. is on most just So of Alan, sellout

We XXXX. than expect the sellouts of to be significantly higher

that side it. to just keep basically doing of of So work we're a lot up on

we pressure grand well, the we out really lot selling As as but more of prepared is on openings during more mentioned communities. coming out have a the remarks,

point So little from tough of bit that view. of year a it's a

about wanted to fourth more quarter, give year. on You're said little color we the what you the in a accurate

quarter, go quarter happening. year the Normally, to end year-over-year first a have what's spring on good some season moving of we're and we'll kind selling of just indicate we really And in X through out comps basis second the on that as pretty comes X-quarter the in XXXX -- dip what spring back to fairly just it strongly point the in at time expect selling season. quarter this is little is that And a -- we before count. see community next to prior fourth dip average

with So that. we're pleased

factors with et like homebuilding any pretty delays things communities of that control As industry. do weather, there's all and due to There's we on cetera, of or our always communities lot of the in anyone a openings. natural reasons, to happening things grand But average, good outside Municipalities, getting opening. the disasters, far that. as contribute

quarter. couple just And typically within months or miss will months openings a usually like year later, when single opened quarter, X in or the we opened. like not And a a get I those in by and it's weeks opening later through a say, of missing it's within next quarter end still few communities they're

So it's or next what of driver from sellout saw at XXXX. on negative business the is much look that anticipated tragic year primary impact or really, population super point the primary when -- not impact in a view. it difference a population larger than sellout you we But a just the

Alan Ratner

Okay. I appreciate that, Jeff.

about markets the some gets anticipate you these But acceleration do damaged rebuilding insurance curious these business? days active Second play labor any Any permitting your your of you this I of and to know as very with how far insurance? Maybe your diverted repair there's vis-a-vis And California talking well. changes mature then know damaged the early process all it's homes thinking thankfully, fixing cost more about your as no question, I broadly for in inflation potential homes? fires. to or or pool just just as as of impact the might is how from But direct business. about you're either out communities. X/X I'm overlap anticipate

of I forward? a there, but question cash flow thoughts any think going kind

Jeffrey Mezger

early Alan, we're everything. it's too and take that and general, ongoing, with, some helping to extremely This deal fires we're in I we're still will our employees, time. complex are on in an monitoring keeping and think situation to the speculate it's to and eye going be an

from So housing L.A. in up. these now, X right County all there will expect that back go starts we be as X,XXX don't months homes

handle a out a of Southern get cadence. a a the there the and will capacity to And worked vast lot lot. in I is population think the big of is The than things it onesie-twosie different to no Cal. meantime. geography kind be have in is And

a don't then rebuild of expect order instance, material with of and and with to there's be be get and labor something, we I we infrastructure it to pinch. will lot lot thousands utilities, very homes. to If think short a you it I power to move nimble be here you have on brought get back or So deal crews on. challenge going thousands and of utility for do

that. see openings be a power. assumptions will as And this loses we'll our rebuilt. get long So of labor I have be hit It couple time community maybe material another big may months, community a and in necessarily. to a take we you of can't watchful a thing because And potential. on But and don't touched we get to that

Operator

And Capital line Markets. from of the comes question next RBC Mike the Dahl with

Michael Dahl

incentives and is on it kind incentives incentive margins in simple and rates flat I of the right sounds then this and higher? slowed the if the question for expectations quarter like back the assumption the Just creep to guess first quarter off year slow. at and up crept X dynamic. demand make later point, weeks of Why one the started continuing quarter, your with the through missed is especially to

Jeff Kaminski

this a around and been spreads mortgage rate between and everything there. just had still on the we call, When call, issue was quite down just there's rate volatility And I mean, And bit. optimistic, think the down the we're on right balance the everything doing right? and September treasuries We were a rates lot of up during the environment. come there's the else.

know last we as been years have the and of year. and we've look, have of know two to started was really we couple I don't So overcome the as crystal macro, a don't of we a each we there able amount years, proven that as having do on we uncertainty up and heading. ball move ended kind challenges we where a company, the -- of that's fair really, outstanding through

we'll just it. on be So watchful

that's guidance #X We're on backlog how at, on today. see any things, what cost And quarter, those it we're it's The it's we'll updated any have the I sort just those our came I as of at the than selling it detail we're through at we but But where we we that's backlog calling like it for what every seeing look a up today, We go macro mean, us. are think that's the our numbers. year. expectations probably would, currently don't and side. range. and Mike. you with correlate when see And all guys why more is are we margins we why

Michael Dahl

it. Got

you just Okay. to say to just or make sure Steve's quick heard on the The for assumption flat then is a one, about And early the did kind basis? a pace right question. year, right response of it in I for per what currently community assumptions, you're planning

Jeff Kaminski

in pace on built-to-order we'll of And terms that visibility well better in a of Yes. revenues, we'd I numbers. season, full spring think our rates. housing do partially important for out through like mean, the that revenues. rates the spring that absorption into one year we're look, careful for But thing Right now, is season, as Again, really as see goes. the thing backlog, selling the selling to spring those reason order get the basically model we'll feel sets of have is we the working us have I order and for forecast about where overall up end visibility the depending on always better off both trying the we future. year, the most

Operator

does ladies And today's participation. Thank conclude your gentlemen, for teleconference. and that you

disconnect now may your You lines.

KB Home (KBH) 13 Jan 252024 Q4 Earnings call transcript